Buying shares in real estate is again feasible for the small investor

For most people, ''dabbling in real estate'' has meant coming up with several thousand dollars to dabble with, in addition to having a large net worth. In other words, you had to be rich.

But a growing number of people are finding they can invest in real estate while limiting their liability to a few hundred or a few thousand dollars. At the same time, they are getting a highly liquid portfolio of industrial, commercial, and residential real estate that can be purchased these days at discounts of up to 40 percent.

The investment vehicle is known as a REIT, or real estate investment trust, a name that has polished up a tarnished image it got in the mid-1970s when several highly leveraged funds went bankrupt in a credit crunch.

Under the Real Estate Investment Act of 1961, which set up the structure for REITs, qualified trusts invest in real estate mortgages or equities for the benefit of investors, and they do not pay taxes at the trust level as long as they meet certain criteria. These include paying out at least 95 percent of the REIT's annual taxable income as dividends.

The REIT of today is largely a different animal from the one that got into trouble eight or nine years ago. Instead of the mortgage REIT, the most common variety now is an equity REIT. Mortgage REITs provide short-term financing on large construction and development projects or make mortgage loans. Equity REITs buy income-producing real estate, as opposed to mortgages. Their income mainly comes from the rents from these properties.

Until 1973-74, most REITS were of the mortgage variety. Some of the biggest names in finance, including Chase Manhattan Bank and Bank of America, lent their names to these fast-growing investments. But then the bubble burst. The Federal Reserve Board imposed credit controls, interest rates went up, many contractors went out of business leaving unfinished projects, and a lot of REITs were stuck with unearning assets.

After that debacle, many of the surviving REITs were reorganized into equity REITs, with existing, paying properties to back them up. There are still some mortgage REITs around, but the troubles of the 1970s have made them much more careful about the kinds of investments they get into.

Having income property to ensure continued dividends makes REITs particularly attractive to pension funds that want investments which are both highly liquid and easy to document for the regulators. Or as Stephen Conway, a financial planner with Asset Management Corporation, in Boca Raton, Fla., said: ''The pension funds like to have something they can see and touch.''

But REITs can also be attractive to individuals looking for high returns. Some REITs, in fact, are paying yields that are competitive -- and occasionally beating -- money market funds.

Unlike real estate limited partnerships, which often require an investor to have a high net worth and fairly high income, anyone can get into a REIT. Shares are available from your stockbroker or financial planner, if the planner is a registered securities dealer. For most people, it would be a good idea to talk with the broker or financial planner before investing to see whether mortgage or equity-backed REITs meet your needs.

For his part, Mr. Conway prefers equity REITs invested in multifamily rental property, preferably in the Sunbelt. There, he says, apartment shortages mean higher rents, which is bad for renters but good for investors. An apartment being used as a REIT investment, he contends, should have a minimum 85 percent occupancy rate, preferably 90 to 95 percent.

One thing that is bothering REITs -- but attracting investors - - says Mercer Jackson, executive vice-president of the National Association of Real Estate Investment Trusts, is that many of them are heavily discounted or selling at less than the market value of the properties they own. The discounting occurred because many REITs have property on their books that was appraised seven or eight years ago, when many trusts had to foreclose on bankrupt builders. So these REIT shares represent real estate at wholesale prices.

This means the share prices can be as much as 30 to 40 percent lower than they would otherwise be. One REIT, for example, was recently selling on the New York Stock Exchange for $24.25 a share, but its appraised value was $38.40 a share, a discount of more than 36 percent. At the same time, it was paying a 13. 8 percent yield.

If you want to invest in discounted real estate, your broker or financial planner should be able to help you find similar bargains.